Bill Restricting State Regulation of Internet Phone Service

Silicon Valley companies, cable providers and phone companies are squaring off with consumer groups and labor unions over a bill that would restrict the ability of the California Public Utilities Commission to regulate Internet phone service – although the commission has not moved to do so and the federal government says they can’t even if they want to.

Supporters of the heavily lobbied bill say state regulation of Internet phone service, which is increasingly supplanting traditional landline, would thwart innovation of technologies like Skype and create a hodge-podge of state regulation.

“The whole Internet service industry as we know it has blossomed under the current regulatory framework we’ve had for more than a decade now,” said Sen. Alex Padilla, author of the bill, SB 1161.

“But it’s an informal strategy and we want to make it California’s official policy,” the Los Angeles Democrat said.

Consumer groups and unions counter that the increasing use of Internet phone service, known ponderously as “Voice Over Internet Protocol,” is the very reason the public utilities commission shouldn’t be preempted from the ability to regulate at least some Internet services.

“This isn’t about regulating the Internet, this is about regulating a technology that millions of consumers rely on everyday and this Legislature and the commission have deemed an ‘essential service’ for decades,” Christine Mailloux, a lawyer for The Utility Reform Network, told the Senate Committee on Energy, Utilities and Communication at a March 20 informational hearing.

Use of Internet phone service, provided through broadband, is rapidly increasing.

From 2008 to 2010, subscribers to Internet phone service nationally climbed by 46 percent while users of traditional telephone services fell by 17 percent, according to statistics presented by the Senate utilities committee.

AT&T and Verizon, both supporters of Padilla’s bill, posted a combined 29 percent increase in the number of Internet phone service customers between June and December 2011.

“AT&T, Verizon, Comcast, Cox Cable and other providers of home phone service could argue that they (are) exempt from complying with current consumer protection regulations and non-discrimination requirements,” says an opposition letter by the federation.

Padilla’s bill, set for a hearing before the Assembly Appropriations Committee on August 8, would preclude state public utilities commission regulation of Internet phone services until January 1, 2020 without legislative approval.

“This is all relatively new. The Legislature should be in the driver’s seat,” Padilla said in an interview.

No state currently regulates Internet phone service in part because the Federal Communications Commission said in a 2004 ruling that they can’t.

The FCC’s rationale was that it would be impossible to figure out how much Internet phone service occurred within state lines – making it subject to state regulation – and how much was interstate.

Also, the commission said Congress established a policy of an unfettered Internet marketplace that would be inhibited by following “the requirements of more than 50 jurisdictions with more than 50 different sets of regulatory obligations.”

Echoes the Silicon Valley Leadership Group, one of the sponsors of Padilla’s measure:

“It is critical that the state of California not place any unnecessary barriers in the way of the driving industries enabled by the Internet and grown here in our state.”

Twenty-four states and the District of Columbia have passed laws reiterating the FCC’s ruling that Internet phone services aren’t subject to state regulation.

In its 2004 ruling, the FCC was careful not to say Internet phone services were “telecommunications services.”

But, despite the commission’s historic refusal to regulate the Internet, it did impose some minimum requirements on Internet phone service providers.

Among them are offering 911 services, access to disabled users, protection of customer privacy and allow customers to keep their same telephone number if they change providers.

Despite the federal preemption of state regulation, critics of Padilla’s bill say that its passage precludes protection against unauthorized charges or privacy violations.

“Removal of governmental oversight from private management of information raises civil liberties concerns because the collective personal communications, consumption and transactional information of millions of Americans is migrating to, traveling over, and being stored on privately owned (Internet Protocol)-enabled networks,” wrote the American Civil Liberties Union in opposition.

Padilla says his bill does not diminish the existing powers of the public utilities commission over privacy and consumer protections.

In 2004, the commission opened hearings to determine how to regulate Internet phone services under state law but decided after several years that until the FCC determined it was a “telecommunications service” that could be regulated it was premature to consider the question.